Question

1/ Assume you purchased a car that costs $14,000. The car dealership is offering financing at 5% per year. How much is your annual payment assuming you financed the car for 5 years? How much did the car actually cost?

2/ At the beginning of the season on April 1, Green Acres Golf Course completed a physical inventory count and found that $3,000 of inventory was still on hand. Throughout the month of April, Green Acres had the following purchase transactions occur to restock their clubhouse merchandise. Determine the cost of goods available for sale.

• Purchased 10 golf bags for $50 each from a national vendor.

• Purchased 200 boxes of 12-pack golf balls printed with the Green Acres Golf Course logo for $10 per box.

• Purchased 3 sets of golf clubs that cost $150, $200 and $250 respectively.

• Returned 15 boxes of golf balls due to a logo printing defect.

• Purchased 55 personalized polos for $20 per shirt. When the shirts arrived, Green Acres did not like the shirt color chosen and negotiated a $2 per shirt allowance with the supplier.

Answer 1

Please find below the required answer for above given questions:

1)

a) If I have purchased a car costing $14,000 with 5% financing for 5 years under simple interest rate then total cost of my car and annual payment for next 5 years towards this car total cost would be as follows:

Simple Interest Calclulation Formula: A = P*(1+r*t) where "A" stands for Amount, "P" stands for Principal, "r" stands for Annual Rate of Interest and "t" stands for Time period in number of years. P = $14,000, r = 5%, and t = 5 years

Therefore, the total cost of car for 5 years financing with 5% simple interest calcluation is 14,000*(1+5%*5) = $17,500

and annual payment for next 5 years is Total Car Cost / 5 years i.e. 17,500/5 = $3,500 p.a.

b) If I have purchased a car costing $14,000 with 5% financing for 5 years under compounded interest rate then total cost of my car and annual payment for next 5 years towards this car total cost would be as follows:

Annual Compunded Interest Calclulation Formula: A = P*(1+r/n)^(n*t) where "A" stands for Amount, "P" stands for Principal, "r" stands for Annual Rate of Interest, "n" stands number of compounding periods in a year and "t" stands for Time period in number of years. P = $14,000, r = 5%, n = 1 year i.e. yearly and t = 5 years

Therefore, the total cost of car for 5 years financing with 5% simple interest calcluation is 14,000*(1+5%/1)^(1*5) = $17,867.94

and annual payment for next 5 years is Total Car Cost / 5 years i.e. 17,867.94/5 = $3,573.59 p.a.

2)

The cost of goods available for sale is $7,050 and working of same is as given below:

Journal Entries in the books of Green Acres Golf Course
Transaction No.	Description	Debit	Credit
1	Inventory	$500
	Cash		$500
	[Purchased 10 golf bags for $50 each i.e. 10*50 from a national vendor]
2	Inventory	$2,000
	Cash		$2,000
	[Purchased 200 boxes of 12-pack golf balls for $10 per box i.e. 200*10]
3	Inventory	$150
	Inventory	$200
	Inventory	$250
	Cash		$600
	[Purchased 3 sets of golf clubs for $150, $200 and $ 250 respectively]
4	Cash	$150
	Inventory		$150
	[Returned 15 boxes of golf balls due to logo printing defect i.e. 15*10]
5	Inventory	$1,100
	Accounts Payable		$990
	Purchase Allowance		$110
	[Purchased 55 personalised polos for $20 per shirt from a supplier with $2 per shirt as allowance since shirts color didn't like by Green Acres Golf Course]

Inventory
Opening Balance c/d	$3,000	Cash	$150
Cash	$500	Closing Balance c/f i.e. cost of goods available for sale	$7,050
Cash	$2,000
Cash	$150
Cash	$200
Cash	$250
Accounts Payable	$1,100
	$7,200		$7,200